Despite the uncertainty in the office market due to the extended lockdowns and working from home mandates, this year has seen unprecedented levels of demand to purchase suburban office assets — particularly from first-time commercial investors.
Following the trends we have seen across other commercial asset classes, Ray White Commercial head of research Vanessa Rader said demand had been high this year to secure quality, income producing assets, given the volatility in the share market, strong gains in residential values coupled with the availability of finance.
“Analysis of 2021 transactions has unearthed a record number of first-time commercial investors coming into the market, putting pressure on capital values and lowering yields,” Ms Rader said.
“Confidence has been heightened in some suburban locations given the improvements in enquiry levels as some businesses look to reassess their office accommodation options and provide their staff more local, satellite office locations.
“The ability to secure assets across all price points has also been a major drawcard for private buyers with high volumes of sub $1million properties changing hands.”
In the first nine months of 2021 Ray White Commercial have monitored close to $2.45billion in suburban office transactions, including the sale of the Woolworths HQ in Bella Vista for approximately $463million (the largest ever suburban office transaction) and a 50 per cent stake of The Locomotive Workshop in Eveleigh for $231million.
“While these assets may be out of reach for smaller, private buyers, the confidence shown by large domestic and offshore corporates to invest in the suburban office markets has not gone unnoticed by this emerging savvy buying group,” Ms Rader said.
“First time and private buyers have been active across the office asset class this year given the low interest rates and the overarching demand for income producing commercial property options.”
Of the 509 office transactions monitored by Ray White Commercial in 2021, 444 of these sales are in the sub $5million price range which highlight the strong demand.
The sub $1million price point, which includes smaller strata office suites, is represented by 271 transactions.
“This price bracket is within reach for many first-time buyers, self-managed super funds as well private investors,” Ms Rader said.
“This has resulted in strong compression of investment yields currently ranging from 4.00 per cent to 6.50 per cent, however, we have seen assets trade above and below this range depending on quality, lease covenant, location etcetera.”
Ray White Commercial Western Sydney director Victor Sheu said while all commercial assets in the sub $5 million range were in high demand, interest in suburban office assets had piqued in recent months.
“Offices have traditionally attracted more occupiers than investors, but have recently become of interest to investors as well,” Mr Sheu said.
“There is a shortage of stock in that sub $5 million range, so buyers have expanded their search from retail and warehouse investments into suburban offices as well.
“For assets located in centralised employment hubs like Parramatta, Penrith, Bankstown and Liverpool, people are very receptive at the moment.”
A current investment opportunity in the suburban office market is 26 Meredith Street, Bankstown, which is up for auction on November 23.
Mr Sheu said he had been receiving a lot of enquiry from first time investors in commercial assets listed in the sub $5 million range.
“We have a retail asset at Pennant Hills that is tenanted by a dry cleaner currently on the market, we have received a lot of first time investors calling suggesting that they are looking to get into entry level commercial assets,” he said
“That’s been happening a lot in the last month, across a range of properties we are marketing
“It has been anything we’ve listed, especially in the $1 million to $3 million range, we get a lot of people who are calling and asking about the commercial market.”